I find this whole set of crypto-currency experiments fascinating. It's a grand libertarian experiment -- what happens if you create a new market, without any government regulator? It looks like you initially have chaos (makes sense), and I think there are now groups of people working together. The one thing we definitely don't have is transparency. I'm a bit worried that the groups of people working together are manipulating prices, but without transparency, I have no idea.
An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
251–260 of 359 posts
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#252Earlier quoted context omitted.
We're in agreement, but lack evidence is not evidence of wrongdoing.
It's not proof , but "you just have to trust me" when talking about hundreds of millions of dollars is potential evidence of something shady.
Add to which, "We have no obligation whatsoever to exchange your Tether for USD, and you have no right of redemption for this, either."
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#253Earlier quoted context omitted.
I'm no expert but mulling it over.... If Tether is big enough that the price of BTC is effected by it, such that investors feel they can cash out and that is part of their risk calculation, then a tank in Tether would also cause a drop in BTC. If Tether is backed by loans and not hard cold cash that's a risk and effects the value. If someone is able to buy Tether on credit, and the credit is actually backed by BTC th…
If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether. Conceivably, a crisis with Tether could affect confidence in the entire cryptocurrency ecosystem, which would put downward pressure on the Bitcoin exchange rate. It's not clear which of these factors would dominate, so it's not clear what would happen to exchang…
> If traders lose faith in Tether, they would sell Tether and buy Bitcoin in a flight to safety. Bitcoin prices would rise as traders try to get out of Tether.
That might be the outcome, however:
- If there would be the slightest bit of panic btc transactions would be congested for days.
- If people would loose money by Tether their btc margin positions would be getting closed.
- Because they loose faith in one crypto they would by another?
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#254Earlier quoted context omitted.
There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.
> Tether exists to normalize arb opportunities between exchanges. That's what it was created for. What things are created for and how they actually behave often diverge.
Wasn’t it _actually_ created to allow export of funds after the parent exchange was banned by the US and Taiwanese banking systems?
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#255This sounds like what would happen to stocks if NYSE/NASDAQ are able to print USD to just keep the stock market going up...oh, wait the FED is doing that...
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#256I found this comment, by Richard Berger on SeekingAlpha, compelling: > STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up B…
> Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether.
This purported mechanism needs a more thorough explanation from the author before it can seriously considered. How, exactly, does this arbitrage opportunity work?
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#257When something doesn't make sense, usually it's because information is missing. Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges. If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity. Similarly, the conventional wisdom says cryptocurrencies…
Tether is how you short bitcoin -- it's hard to move USD out of exchanges, people are worried about a bitcoin (or "all cryptocurrencies") drop, so they move into tether hoping to buy back in after bitcoin goes down without having to do the expensive/difficult bitcoin-usd move. This assumes that the price of bitcoin will go down but the rest of the system (exchanges, tether, mining, etc.) will stay intact. As long as…
> As long as people want to short bitcoin there will be lots of demand for tether
Interesting observation.
Most people here are say fractional-reserve Tethers are inflating the exchange rate of other cryptocurrencies.
But that doesn't really make sense, because buying cryptocurrencies means selling Tethers, pushing down the exchange rate for Tethers. But Tethers are trading 1:1 for USD, so something doesn't add up.
You say that Tether demand is strong because traders are selling Bitcoin, and that's propping up the exchange rate of Tether.
So what happens if a Tether fraud is revealed and traders want out of Tether -- does the Bitcoin exchange rate go even higher?
See https://en.wikipedia.org/wiki/Gresham%27s_law where Tethers are the "bad money" causing traders to hoard Bitcoin, the "good money".
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#258Earlier quoted context omitted.
This is like saying you can't lend out a dollar bill you don't have. It's strictly true, but doesn't accurately represent how the banking system work. The $1,000 dollars in my Charles Schwab account don't correspond to 1,000 physical dollar bills somewhere. They are simply a number in a database somewhere. When I go and withdraw that money, I get back a random selection of $1 bills that other people have deposited. A…
Unfortunately fractional reserve isn't safe for a currency that is this volatile. Depending on what the "fraction" is, some major withdrawal demand against one of these exchanges would topple it
So you are a Big Fish. You have a boatload of money in exchange X. You go to take it out and they don't immediately give it to you. They say, "Listen, we can't get to it, it's in our cold wallets, it will take a week." A week goes by, they say, "Listen, here's 10% of what you asked for, we'll get you the rest shortly.". This goes on, they periodically give you some of the money but there's a lot of evasion.
What's the Big Fish to do?
a) Quietly keep pressure on the exchange, taking the money as it comes, while not putting any back into the exchange.
b) Make a big stink, bring in lawyers, write press releases and bring down the exchange, possibly destroying any opportunity of getting the money back.
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#259Earlier quoted context omitted.
> I see the same shit with real estate. And that, famously, _never_ crashed.
Housing prices didn't crash after many years of vastly disproportionate negative sentiment. Housing prices crashed after most of the negative voices capitulated and bought into the speculative fervor, until there were no more buyers. Today, nearly everyone's gut instinct is that cryptocurrencies are scams, frauds, bubbles, Ponzis and tulips. Popular sentiment has been negative for years. How will this thing unravel b…
Actually, housing crashed when lots of people who had bought housing on credit turned out to be unable to service the debt. I don't think there's a similar scenario with bitcoin.
On the other hand, a large secular demand will always exist for housing. The same is not true for bitcoin.
Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange
#260Earlier quoted context omitted.
One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm There's little g…
Calling bitcoin a bubble seems like the wrong word. There are basically two possible outcomes: total market cap zero, or in the trillions. How much you think bitcoin is worth depends on your guess (and it really is just a guess, nobody has any idea what is going to happen) about the relative likelihood of each.
Sure, you can't definitively say something's a bubble until later. If the value ends up high, it's a boom; if not, it's a bubble. But every serious Bitcoin proponent should be concerned that we have crossed from boom to bubble, because the latter can be harmful to serious participants.
I also think there are reasonable cases where Bitcoin ends up with a modest non-zero value. It's not a bad technology for a narrow slice of the cross-border money transfer market, and people could make it more useful if they wanted to. But those outcomes are much less likely if they're a giant crash.